Kyndryl loses $281m in the quarter as modernization agenda continues

How to turn a classic infrastructure biz into something fit for the cloud era

Shapeshifting infrastructure services biz Kyndryl can't plug its revenue leak but cutting costs did cut losses in half.

Revenues dropped 8 percent to $4.2 billion for Kyndryl's Q2 of fiscal 2023 ended September 30 – declines were recorded in every territory that it operates. Net loss was $281 million, which might sound rough until remembering the slide of $690 million a year ago. On the plus side, the bottom line got a boost following a 12 percent reduction in operating expenses.

The business was spun out as a separately traded public entity by IBM in November 2021, and like peers in the field of infrastructure services it has struggled to remain relevant in the 21st century. To this end, it is adapting by forging closer links with cloud providers.

"We continue to execute on our three key initiatives – Alliances, Advanced Delivery and Accounts – which are driving us toward profitable growth," said Kyndryl chairman and CEO Martin Schroeder.

Kyndryl is leaning on agreements with AWS, Microsoft, and Google to "serve even more customers" as well as improve service delivery through "up-skilling and service automation," the CEO explained, adding the company is "addressing elements of the business with substandard margins."

Under the Advanced initiative, Kyndryl said it signed contracts tied to hyperscaler alliances with an aggregate value of $425 million in the first half of its financial year – the target is $1 billion. Advanced saw 3,000 service delivery personnel redeployed to "serve new revenue streams and backfill attrition" to save $150 million in costs. The Accounts initiative is centered on tackling elements of the business with sub-par margins, yielding $80 million in annual benefits.

Kyndryl Bridge was launched recently, an open platform that integrates existing tools, IP, processes, and cloud services used by customers to give insight into their IT estates. Kyndryl Consult is an advisory service and Kyndryl Vital is built to co-design IT services.

As for latest financial figures, the company reported a decline of 2 percent in the US to $1.149 billion, an 18 percent fall in Japan to $614 million, an 11 percent fall in Principal Markets (UK, France, Germany, India, Italy, Australia, New Zealand, Canada, Spain and Portugal) to $2.98 billion, and a 4 percent drop in Strategic Market (all other country operations) to $1.91 billion.

Negative currency movements cost Kyndryl $69 million on adjusted pre-tax income, it said. This is something all US-based vendors with overseas operations are currently trying to manage, given the relative strength of the dollar. ®

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